US Federal Reserve Vice Chairman Stanley Fischer said the central bank has done its best to prepare international markets for its first interest rate increase since 2006 and reiterated that no decision has been made yet about the precise timing of liftoff.
“In the relatively near future probably some major central banks are to begin gradually moving away from near-zero interest rates,” Fischer told the Asia Economic Policy Conference at the Federal Reserve Bank of San Francisco on Thursday.
“We have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market [and other] central bankers have, for some time, been telling the Fed to ‘just do it.’”
Photo: Bloomberg
The Fed has held interest rates near-zero since 2008 and is contemplating lifting them as the job market heals and policymakers gain confidence that inflation would accelerate toward their 2 percent goal.
The move could have big implications for other nations and comes at a time when Asian growth is slowing.
CHINESE GROWTH
In his remarks, Fischer said that even as Asia slows and China in particular rebalances toward domestic consumption, the nation is likely to continue to grow faster than the rest of the world and play an increasingly important role in the global economy.
“China is for some time likely to continue to grow faster than the rest of the world and thus to produce an increasing share of global output,” he said, adding that it is probable that “its growth would result in its playing a more decisive role in the international economy and in international economic institutions.”
He also said that the slowdown in Asia is likely to have persistent effects on some commodity prices, which have plummeted this year, though the long-term outlook for how the region would affect oil prices is less certain.
COMMODITY PRICES
“Declining investment rates in emerging Asia, particularly China, present the prospect of a prolonged decline in the growth rate of commodity demand,” he said.
“Prices could remain low for quite some time, which seems particularly true for metals, such as copper and steel, used heavily in construction and investment,” he added.
Fischer said that China’s oil consumption remains far below that of developed markets and that oil use tends to increase with wealth.
“Further income growth in China has the potential to provide strong support for the oil market in the coming years,” he said.
YUAN IN SDR
Fischer also raised the “likely” inclusion of China’s yuan into the basket of global currencies used for the IMF’s special drawing rights (SDR) as a potentially important development.
IMF staff have recommended the yuan be included in the fund’s SDR reserve-currency basket, alongside the US dollar, euro, pound and yen, making approval by the fund’s board this month all but certain.
Fischer later explained during a question and answer session with the audience that in addition to the symbolic value of the move, it would also be an incentive for China to keep improving its financial markets.
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